School district asks city financing for geothermal

ST. MARYS - School district officials have asked city council for a $1.5 million loan to finance geothermal heating and cooling for the new school tentatively set for groundbreaking in about a year.

Superintendent Ken Baker and school board President Ralph Wiley and Vice President Eric Langsdon asked city council at Monday night's council meeting to finance the project and then bill the school.

In a nutshell, the school did not include the cost of geothermal in the 6.9-mill bond levy voters passed in November. The levy will raise $25.75 million toward the $55 million construction project. The construction project includes a set amount to install a conventional gas boiler/chiller system, and the cost to install geothermal is $1.5 million above that amount.

All school board members have indicated they believe geothermal is the way to go; but, there's not enough money to commit to the system.

Board members Rees McKee, Craig Gottschalk and Lisa Tobin, none of whom were at the city council meeting, have said in previous board meetings they are reluctant to saddle the district with additional debt.

Wiley said geothermal represents an increase in electric cost and he would rather see that money going to the city than going to an outside fuel source. A geothermal system uses the earth's ground temperature to heat and cool a building through electric pumps.

In a letter to the city, the school district requests "$1.5 million over a period of time" and that the city "invoice the district in addition to electric utility payments."

The letter says the school system would save about $96,140 annually by using geothermal over natural gas.

The school's architects have said it would cost about 76 cents a square foot to operate a geothermal system at current electric rates. That means about $158,840 per year in additional electric costs, while the costs for natural gas for the same building would be about $254,980, the letter says.

The letter also says it would be an overall savings in utility costs for the school and an increase in revenue to the city electric fund.

Baker said the district is likely to make up the geothermal cost in various ways including project savings along the way; however, there's a further complication.

The state, which is funding 61 percent of the project, requires that the district cite funding sources for every dollar before the final state approval and release of money. Projected savings are not permitted as a source.

An even heftier complication is that the architects cannot proceed with design until the district decides on an HVAC system. The completed design must be submitted to the state by an early April deadline.

Councilman Jim Harris asked why the school has waited so late to consider geothermal and request financial aid now. Citing his own engineering background, Harris said in effect geothermal appears to have a short shelf life and maintenance costs are high.

"In the last quarter of its (life cycle), maintenance will eat you alive," he said, later conceding the district has done its homework and "is in good shape" as to maintenance concerns.

Baker said the board has discussed the life cycle of geothermal (up to 20 years) and, as to maintenance, the district will set aside $130,000 per year for 23 years for building maintenance.

"Are you expecting to pay us interest?" asked councilman Dennis Vossler.

"Yes," Langsdon responded. "We'd rather pay you interest than some financial institution."

City Law Director Kraig Noble said, based on brief discussion with a bond counselor, there could be a revenue bond between the school and the city with a possible "payback through rates."

"We would extend a competitive interest rate ... It seems a win/win and a normal transaction ... And, yes, I think it can be done," Noble said.

Council members agreed to further discussion of the school's request at the next finance meeting at 5:45 p.m. Monday. Board members are invited. And, as with all public meetings, community members are welcome.